CRE 101 · deweyluong.realtor

Tenant Improvement Allowance Explained: How TI Dollars Really Work in a Georgia Lease

The allowance is part of the rent, just paid in a different direction. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498

Almost no commercial space fits the business that moves into it. A clinic needs plumbing in every exam room, a restaurant needs gas, grease and venting, an office needs walls where the last tenant had an open floor. The build-out costs real money before the first customer walks in — and who pays for it is one of the largest negotiated items in the lease. That negotiated landlord contribution is the tenant improvement allowance, usually shortened to TI.

This page explains how TI works in Georgia leases: how the number is set, what it covers, how it is actually paid out, and the trade-offs against rent, term and free rent. It pairs with lease vs buy and CAM reconciliation and percentage rent, because TI is one leg of the same total-occupancy-cost stool.

The mechanics: what the allowance really is

• Stated per square foot: most allowances are quoted as dollars per square foot of leased area, then multiplied by the leased SF to get the total. Always confirm whether the lease measures rentable or usable SF — the difference is your money.
• Priced off the whole deal: landlords underwrite TI against term length, rent level, tenant credit and how much of the work stays with the building afterward. A 10-year lease to a strong tenant supports far more TI than a 3-year lease to a startup, in the same space.
• Defined by the work letter: the lease exhibit (work letter) lists eligible costs, plan and contractor approvals, the construction deadline, and the disbursement procedure. The headline dollar figure means nothing without that exhibit.
• Not free money: the landlord recovers TI through rent over the term. Comparing two spaces on rent alone, without netting TI, free rent and build-out cost, is how tenants pick the more expensive deal that looked cheaper.

Worked example. The numbers below are made up to teach the mechanics. This is not a real property.

• A medical tenant leases 4,000 SF in Gwinnett for 7 years. The landlord offers a TI allowance of $35 per SF: 4,000 × $35 = $140,000 total allowance.
• The approved build-out budget is $185,000 (exam-room plumbing, HVAC changes, walls, flooring, permits and drawings — all listed as eligible in the work letter). The tenant's out-of-pocket construction share is $185,000 − $140,000 = $45,000, plus furniture and equipment, which TI excludes.
• Disbursement: the tenant pays its contractor, then submits invoices, proof of payment and lien waivers; the landlord reimburses up to the allowance, holding back 10 percent until final waivers and the certificate of occupancy arrive. The lease gives the tenant 9 months from commencement to use the allowance — work finished after that deadline is not reimbursed.
• The comparison that matters: a competing space offered $15 per SF TI ($60,000) at $1.50 per SF per month less rent. Over 7 years the rent saving is 4,000 × $1.50 × 84 months = $504,000 in gross terms before escalations — far larger than the $80,000 TI difference. Neither headline wins alone; the total occupancy cost over the term decides.

Allowance vs turnkey vs as-is: who carries the construction risk

• TI allowance (tenant builds): tenant controls design and contractor; tenant carries overrun risk and schedule risk; allowance reimburses approved costs only.
• Turnkey (landlord builds): landlord delivers to an agreed plan and building-standard specification; landlord carries construction risk; tenant carries specification risk — every upgrade beyond standard is a change order at the tenant's cost.
• As-is with rent credit: no allowance; the tenant takes the space as it sits, often for lower rent or free-rent months instead. Works for second-generation space that already fits; dangerous when hidden conditions (roof, HVAC, code) have not been priced — see due diligence.

Where tenants and landlords get hurt

• Tenants: signing before the eligible-cost list is fixed; missing the TI use deadline; assuming unused TI converts to rent (it usually forfeits); starting work without the landlord's written plan approval, which can void reimbursement.
• Landlords: funding improvements with no value after this tenant leaves; no holdback or waiver discipline, so mechanics' liens land on the building; an allowance sized for a term the tenant can exit early.
• Both sides: negotiating the TI dollar figure hard and the disbursement paragraph not at all. Most TI disputes are procedure disputes — paperwork, approvals and deadlines — not dollar disputes.

Cho chủ doanh nghiệp và người thuê người Việt

Khi thuê mặt bằng thương mại ở Georgia, chủ nhà thường đóng góp một khoản tiền để người thuê hoàn thiện mặt bằng — gọi là TI allowance, tính bằng đô la trên mỗi square foot. Khoản này chi trả cho phần xây dựng cố định như tường, điện, nước, điều hòa, sàn và sơn, nhưng thường không bao gồm nội thất, thiết bị, bảng hiệu hay chi phí dọn vào. Ba điểm cần kiểm tra kỹ trước khi ký: danh mục chi phí được duyệt trong phụ lục xây dựng (work letter), thời hạn phải dùng hết TI (quá hạn thường mất quyền), và cách giải ngân (thường là hoàn trả sau khi người thuê đã thanh toán cho nhà thầu và nộp đủ hóa đơn cùng giấy từ chối quyền lưu giữ — lien waiver).

TI lớn không tự động nghĩa là thương vụ tốt hơn: chủ nhà thu hồi TI qua tiền thuê trong suốt thời hạn, vì vậy hãy so sánh tổng chi phí thuê trong toàn bộ thời hạn — tiền thuê, TI, tháng miễn thuê và phần xây dựng tự chi trả — giữa các mặt bằng với nhau. Đây là thông tin giáo dục chung, không phải tư vấn pháp lý; hãy nhờ luật sư riêng xem hợp đồng trước khi ký.

Frequently asked questions

What is a tenant improvement (TI) allowance?

A TI allowance is money the landlord contributes toward building out the leased space for the tenant's use, usually stated as dollars per square foot of leased area (for example $30 per SF) or as a fixed total. It is not a gift and it is not rent: it is part of the total deal economics, recovered by the landlord through the rent over the lease term. Longer terms, stronger credit and larger spaces generally support larger allowances; short terms and second-generation space generally support smaller ones.

What does TI cover, and what does it usually exclude?

TI typically covers permanent construction: demising and interior walls, doors, ceilings, lighting, electrical and plumbing distribution, HVAC modifications, flooring and paint, and often permits and architectural drawings if the lease says so. It usually excludes furniture, fixtures and equipment the tenant takes with it, signage, moving costs, data cabling beyond building standard, and any work outside the leased premises. The eligible-cost list in the work letter controls — if a cost is not listed, assume it is excluded until you negotiate it in.

What is the difference between a TI allowance and a turnkey build-out?

With an allowance, the tenant runs construction, hires the contractor, and draws the allowance against approved invoices, usually with lien waivers and a deadline to use it. With a turnkey build-out, the landlord delivers the space built to an agreed plan and specification at the landlord's cost, and the tenant's risk is that 'building standard' finishes and change orders define what it actually gets. Turnkey shifts construction risk to the landlord; an allowance gives the tenant control but leaves cost overruns on the tenant.

How and when is TI paid out?

Most leases pay TI as reimbursement after the tenant has paid the contractor and submitted invoices, proof of payment, lien waivers and certificates of occupancy where required — not as cash up front. Common traps: a use-it-or-lose-it deadline (often 6 to 12 months after commencement), a landlord approval right over plans and contractors, a holdback until final waivers arrive, and forfeiture of unused TI unless the lease lets leftover dollars convert to rent credit. Read the disbursement paragraph before you sign, not after you build.

Khoản hỗ trợ hoàn thiện mặt bằng (TI allowance) trong hợp đồng thuê thương mại là gì?

TI allowance là số tiền chủ nhà đóng góp để người thuê xây dựng, hoàn thiện mặt bằng theo nhu cầu sử dụng, thường tính bằng đô la trên mỗi square foot (ví dụ $30/SF) nhân với diện tích thuê. Đây là một phần của tổng điều kiện thương vụ — chủ nhà thu hồi qua tiền thuê trong suốt thời hạn hợp đồng — nên thời hạn thuê càng dài và hồ sơ tín dụng của người thuê càng mạnh thì khoản TI thường càng lớn. TI thường chi trả cho xây dựng cố định như tường, cửa, trần, đèn, điện, nước, điều hòa, sàn và sơn; đồ nội thất, thiết bị mang theo, bảng hiệu và chi phí dọn vào thường không được tính. Hãy kiểm tra kỹ danh mục chi phí được duyệt, thời hạn sử dụng TI và cách giải ngân trong phụ lục xây dựng (work letter) trước khi ký, và xác nhận mọi điều khoản bằng văn bản với luật sư. Đây là thông tin giáo dục chung, không phải tư vấn pháp lý.

This page is general education, not legal, tax, or accounting advice. TI terms live in the lease and its work letter — have your own attorney review both before you sign. Túy “Dewey” Luong, CCIM is a real estate broker, not an attorney.